Chancellor Alistair Darling delivered his first Budget on Wednesday 12 March 2008. Beginning with the wider economy, he said the British economy was growing at a faster rate than all other G7 countries. He forecast GDP growth of between 1.75%-2.75% in 2008 and between 2.25% and 2.75% in 2009. He predicted inflation would remain at around 2% in 2008 and 2009 and said he would write to the governor of the Bank of England to request this.
Mr Darling said that the purpose of this year's Budget was 'stability now and in the future', and for 'equipping Britain for the times ahead', in light of the current global economic crisis. He also said that 'Britain was one of the best places in the world to do business'.
Mr Darling confirmed his changes to Capital Gains Tax (CGT), originally announced in January this year, which will see small and medium-sized businesses charged a rate of 10% for the first £1 million of gains. He also confirmed a 2p cut in corporation tax for large companies, from 30p to 28p in the pound.
Mr Darling's first Budget contained some good news for entrepreneurs. It included the extension of the Government's Small Firms Loan Guarantee Scheme (SFLG) to include all businesses and an increase of £60 million in funding the scheme.
He also introduced a goal for small firms to win 30% of all public sector business contracts in the next five years, and he announced a package of 20 tax simplification measures to help reduce red tape costs and simplify tax calculations.
In addition, the enterprise management incentive tax relief scheme will increase from £100,000 to £120,000 and there will be a £12.5m fund to help and encourage female entrepreneurs.
As expected, environmental issues were high on the Chancellor's agenda, in line with the Government's aim to combat climate change. From 2010, new cars that emit less than 130g of CO2 emissions will pay no car tax in the first year. Those that buy the most polluting cars can expect to pay higher road tax in the first year. Mr Darling also announced a charge on plastic bags, which is to become legislation in 2009 if voluntary measures are not taken up by retailers.
The Chancellor announced new funding for road-pricing trials and tenders were invited to test the technology.
The increase in petrol duty will be capped at 2p this year but will be deferred until October. However, the Chancellor also announced a fuel duty increase of 0.5p per litre for 'environmental reasons', to take effect from 2010.
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Here are the key points from the Budget 2008:
Corporation tax
The main rate of corporation tax (CT) is 28% for the 2008/09 financial year. However, there is a lower rate of 21% for small companies with taxable profits of less than £300,000. Legislation will be introduced in the Finance Bill 2008 to set the main rate of CT at 28 % on and after 1 April 2009.
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Capital allowances
As announced in last year's Budget, with effect from April 2008, capital allowances for general plant and machinery investment will be reduced from 25% to 20%. Also with effect from April 2008, capital allowances for longlife plant and machinery investment will be increased from 6% to 10%.
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Capital Gains Tax
April 2008 sees the abolishment of taper relief and indexation allowance. From 5 April 2008 there will be a single rate of 18%. There is also a 10% rate on gains of up to £1 million to help smaller businesses.
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Income-shifting legislation
The Chancellor announced he would postpone the introduction of legislation to combat income shifting until 2009, as the issue needed further consultation.
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Tax, National Insurance and VAT
The limits for the different classes of National Insurance Contributions (NICs) also rise in line with inflation, with the lower profits limit for the Class 4 NICs paid by self-employed people up to £5,435 and the upper profits limit for Class 4 NICs rising to £40,040.
The inheritance tax rate was effectively increased from £300,000 to £600,000 in October 2007 for married couples and civil partners. This will take many estates out of inheritance tax completely.
From 1 April 2008, the VAT registration threshold will be increased from £64,000 to £67,000 and the deregistration threshold from £62,000 to £65,000, and from 1 June 2008, revised legislation will be introduced to extend the cooling-off period to six months and relax the disapplication rules for commercial property sold for housing development.
From 12 March 2008, the Stamp Duty Land Tax lease duty rule threshold for commercial property will increase from £600 to £1,000.
From April, the tax relief on empty commercial property will be restricted to six months for larger business accommodation and to three months for empty shop and office space.
The Chancellor also added an extra 11p to a packet of 20 cigarettes (effective from 12 March), beer will be up by 4p a pint, wine 14p a bottle, spirits 55p a bottle and cider 3p a litre (effective from 16 March).
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Reaction to Darling's first Budget
In his reply, Conservative leader David Cameron said the UK was badly prepared for turmoil in the global economy. The Liberal Democrat leader Nick Clegg dismissed Mr Darling's first Budget as a green cop-out.
The Federation of Small Businesses welcomed a Budget that didn't 'spring any nasty surprises on small businesses'. However, it noted that the Chancellor had mooted the idea of road pricing, and said it was 'worried that the Chancellor was pushing ahead despite massive opposition'.
David Young, chairman of the UK200 Group Tax Panel, commented:
“There is much talk of simplification this year, but the implementation of the changes is anything but simple. There is a stack of information buried in paperwork that people may not be aware of. It is becoming increasingly difficult when advising clients, to ensure that you have picked up all the significant changes. We are fast approaching the point where the tax system is becoming unworkable."
Emma Jones is manager of Redbrick Enterprises Ltd and the editor of Enterprise Nation, a website for home business owners.
She told Cobweb that, while she was pleased about the introduction of the £12.5 million capital fund to encourage more women entrepreneurs, she was disappointed to think that they had to be treated differently to men.
"My experience is that the majority of businesses started by women, are started from home with funds of less than £500. These start-up businesses don't usually require external funding to get off the ground.
"My ideal Budget would have seen an increase in the level of turnover required before having to register for VAT. This would have removed some of the bureaucracy associated with running a small business."
However, she welcomed the decision to make more funds available through the Small Firms Loan Guarantee Scheme.
"The 60% extra funding for the Small Firms Loan Guarantee Scheme is a big tick in the box. This will help many small businesses take the next step in their development."
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Further information
The full Budget report and associated notices are available from HM Treasury at:
http://www.hm-treasury.gov.uk/budget/budget_08/bud_bud08_index.cfm
HM Revenue & Customs (HMRC) has a summary of the measures introduced by the Budget in terms of tax, NI and VAT at:
http://www.hmrc.gov.uk/budget2008/notes-pdf.htm
A summary of the main points of the Budget is available from the BBC website at:
http://news.bbc.co.uk/1/hi/uk_politics/7290372.stm
The Financial Times' coverage, including point-by-point summaries and additional analysis, is available at:
http://www.ft.com/indepth/budget2008
The Federation of Small Businesses' (FSB) response can be read at:
http://www.fsb.org.uk/news.asp?REC=4537
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Also from the publisher of the Budget 2008 special
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